JSL SA (JSLG3), Brazil’s biggest trucking company, is considering bidding on government port contracts to accelerate growth, boost profits and cut costs on cargo from Volkswagen AG car parts to Vale SA (VALE5) iron ore.
The company is seeking port projects where complementary investments such as industrial facilities and productivity gains can generate a return of 15 percent, Chief Executive Officer Fernando Antonio Simoes said. JSL, based in Mogi das Cruzes, Brazil, can augment government-mandated returns by leasing infrastructure and land around ports and by handling the seaborne shipments of cargo it already trucks from factories to the harbor, he said.
An overhaul of port rules and new railways in the world’s largest coffee, sugar and ethanol exporter may provide JSL with investment opportunities as the government raises the estimated returns on infrastructure projects to lure companies. JSL expects that the higher return targets and the opportunity to expand its services will boost growth beyond the company’s forecast of 18 percent annually.
“We see clear synergies with existing concessions,” Simoes, 45, said in an interview at Bloomberg’s Sao Paulo office. “It’s a great opportunity for a service provider.”
JSL, the biggest logistics provider in Brazil by revenue, has almost doubled in Sao Paulo trading since its April 2010 initial public offering. The company trades at 28 times estimated earnings for 2013, according to data compiled by Bloomberg. That compares with ratios of 19 and 18 for freight operators Log-in Logistica Intermodal SA and All America Latina Logistica SA, respectively.
Shares of JSL have rallied 13 percent this year, compared with a 4.6 percent drop for the Bovespa Small Cap Index. Seven analysts rate the stock a buy, while six say hold and one recommends selling, according to data compiled by Bloomberg.
JSL is capable of reaching 15 percent returns on port projects because it also has long-term contracts with automobile, food, pulp and steel exporters, saidMario Bernardes Jr., an equity analyst at Banco do Brasil SA.
“They can get exactly that because of the portfolio they have in logistics,” Bernardes, who rates the stock the equivalent of neutral, said in a telephone interview from Sao Paulo. “The company ends up being able to cross-sell for various solutions.”
JSL said in a regulatory statement last night that first- quarter gross revenue rose 22 percent from a year earlier to 1.18 billion reais.
President Dilma Rousseff’s ports bill, part of a plan to lure $65 billion of investments to expand harbors, roads and railways, will allow companies such as JSL to offer shipping services from their own terminals.
Under the measures scheduled for a final congressional vote next week, logistics companies operating their own ports will be able to secure returns of as much as 18 percent after investments in the hub’s surroundings and cost cuts are considered, said Marcos Vendramini, Brazil transportation director at Los Angeles-based Aecom Technology Corp. (ACM) That compares with a government target of 8.3 percent returns for port licenses.
“The sector will definitely improve with these measures,” Vendramini said in a telephone interview from Rio de Janeiro. “It will open the sector up to companies from other industries like JSL.”
The biggest risk for JSL in running a port would be its lack of experience, Vendramini said.
“The operation of a port is another culture,” he said. “It has its own rites and is not a well-oiled machine.”
Failure to sell road contracts in January because of return targets that investors considered too low is leading the government to set higher goals, saidBernardo Figueiredo, head of the government’s logistics company, known as EPL. In the case of a road concession that the government failed to sell in January, the return target is being raised to 15 percent from 5.5 percent, he said.
“The government is conscious of the fact that it’s limited operationally,” Figueiredo said at an event in Sao Paulo on April 16. “All of the programs launched since August, including roads, railways, airports and ports, will be done in partnerships with the private sector.”
Brazil is also sweetening the projects by increasing funding from the national development bank, known as BNDES, to as much as 80 percent in some cases, Figueiredo said.
The plan to use its experience in logistics to get into ports will help JSL maximize profits as it seeks to continue growing, Banco do Brasil’s Bernardes said.
“The company has many more positive points to be explored than risky points,” he said.
To contact the reporter on this story: Christiana Sciaudone in Sao Paulo at firstname.lastname@example.org